According to a new report, three Canadian cities rank high for startup activity. But it’s not all sunshine and lollipops for Toronto, Vancouver and Waterloo, Ont.

The three cities made this year’s list of the world’s top 20 ecosystems for startups from Startup Genome and Telefónica Digital. Toronto was 8th, with Vancouver 9th and Waterloo 16th. The Silicon Valley held down the top spot. Toronto slipped from 4th place last year, but one note of caution.

As Startup Genome told ITBusiness.ca last year, the list measures how many businesses have used Startup Genome’s Startup Compass benchmarking tool, and isn’t intended to be a ranking of the top global startup eco-systems. Activity, notes the company, is just one measure of the vibrancy of a startup eco-system.

So just as Toronto finishing 4th shouldn’t have been a major cause for celebration, nor should its slipping to 8th. But some of the accompanying commentary in the report should be of interest to business leaders in each of the three Canadian communities that made the report.

Toronto: The report identifies the usual challenges for Toronto startups, such as customer acquisition, funding and team building. Funding is a particular challenge, with Toronto startups receiving 71 per cent less funding than their Silicon Valley (SV) counterparts. Serial entrepreneur and Upverter co-founder Zak Homuth warned Toronto risks entrepreneurs relocating to New York City or Boston if things don’t improve. ““Toronto is broken. Toronto is a young startup ecosystem, largely because it wasn’t always possible to run a startup here. This has two effects as far as I can tell. The first is that most of the entrepreneurs here in Toronto are very young, the average age is definitely lower than the Startup Genome Project average of 33. And the second is that almost all of us aren’t tied to Toronto.”

Toronto’s ranking in the ecosystem lifecycle.

Vancouver: According to the report, Vancouver entrepreneurs tend to be less educated than their SV Valley counterparts and financing is also a large problem, with local firms receiving 80 per cent less financing than SV firms and the late stage funding market basically non-existent. It advises later stage start-ups to consider relocating to more capital-friendly cities.

Waterloo: Viewed by the report as an adjunct to the Toronto hub, the authors say Waterloo will be challenged to hold onto its talent base and not lose it to Toronto. Waterloo is more focused on mobile and side-consulting than SV, but early stage funding is a key challenge. “Waterloo needs to establish grounds for graduated talent to stay in town to sustain and foster the hub,” said the report. “It will be crucial to stop a potential brain drain. It is not guaranteed that Waterloo will continue to grow and become self-sufficient as Toronto might get stronger and attract more talent locally.”

Jeff Jedras is a technology journalist with IT World Canada and a member of the IT Business team. He began his career in technology journalism in the late 1990s, covering the Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada and the channel for Computer Dealer News. His writing has also appeared in the Vancouver Sun & the Ottawa Citizen.